Bruker Corp: Form 10-Q for the period ended Mar 31, 2024

The following discussion of our financial condition and results of operations should be read in conjunction with our interim unaudited condensed consolidated financial statements and the notes to those statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q, and in conjunction with the unaudited condensed consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2023.

Any statements other than statements of historical fact contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Quarterly Report on Form 10-Q may be deemed to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Without limiting the foregoing, the words “believe,” “anticipate,” “plan,” “expect,” “seek,” “may,” “will,” “intend,” “estimate,” “should” and similar expressions are intended to identify forward-looking statements.

Forward-looking statements include, but are not limited to, statements regarding:

• the impact of supply chain challenges on our business and operations;
• our working capital requirements and the sufficiency of our cash, borrowings and proceeds of indebtedness to fund our operations and investment activities;
• our plans to make capital investments;
• the impact of changes to tax and accounting rules and changes in law;
• fluctuations in estimates impacting costs related to our self-funded health insurance plan;
• our expectations regarding backlog and revenue;
• our expectations and the impact of our restructuring initiatives;
• the impact of our global IT transformation activities;
• the impact of foreign currency exchange rates and changes in commodity prices; and
• any other statements that address events or developments that the Company intends or believes will or may occur in the future.

Actual results may differ from those referred to in any forward-looking statements due to a number of factors, including, but not limited to, the risks described in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 and in this Quarterly Report on Form 10-Q, including the factors presented on page 32. We expressly disclaim any intent or obligation to update these forward-looking statements other than as required by law.

Non-GAAP Measures

Although our unaudited condensed consolidated financial statements have been prepared in accordance with GAAP, we believe that describing revenue and expenses, excluding the effects of foreign currency, acquisitions and divestitures, as well as certain other charges, net, provides meaningful supplemental information regarding our performance. We rely internally on certain measures that are not calculated according to GAAP. These measures are organic revenue, free cash flow, non-GAAP gross profit, non-GAAP gross profit margin, non-GAAP operating income and non-GAAP operating margin. Our management believes that these financial measures provide relevant and useful information that is widely used by equity analysts, investors and competitors in our industry, as well as by our management, in assessing both consolidated and business unit performance.

We define the term organic revenue as GAAP revenue excluding the effect of foreign currency translation changes and the effect of acquisitions and divestitures. We define the term non-GAAP gross profit as GAAP gross profit with certain non-GAAP measures excluded and non-GAAP gross profit margin as GAAP gross profit margin with certain non-GAAP measures excluded. We define the term non-GAAP operating income as GAAP operating income with certain non-GAAP measures excluded and non-GAAP operating margin as GAAP operating margin with certain non-GAAP measures excluded. These non-GAAP measures exclude costs related to restructuring actions, acquisition and related integration expenses, amortization of acquired intangible assets, costs associated with our global information technology transition initiatives, and other non-operational costs, and we believe these are useful measures to evaluate our continuing business.

We define free cash flow as GAAP net cash provided by operating activities less additions to property, plant, and equipment. We believe free cash flow is a useful measure to evaluate our business as it indicates the amount of cash generated after additions to property, plant, and equipment which is available for, among other things, investments in our business, acquisitions, share repurchases, dividends and repayment of debt.

We regularly use these non-GAAP financial measures internally to understand, manage, and evaluate our business results and make operating decisions. We also measure our employees and compensate them, in part, based on such non-GAAP measures and use this information for our planning and forecasting activities. These measures may also be useful to investors in evaluating the underlying operating performance of our business. The presentation of these non-GAAP financial measures is not intended to be a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, and it may be different from non-GAAP financial measures used by other companies, and therefore, may not be comparable among companies.

OVERVIEW

We are a developer, manufacturer and distributor of high-performance scientific instruments and analytical and diagnostic solutions that enable our customers to explore life and materials at microscopic, molecular and cellular levels. Our corporate headquarters are located in Billerica, Massachusetts. We maintain major technical and manufacturing centers in Europe, Asia and North America and we have sales offices located throughout the world. Bruker is organized into four reportable segments: the Bruker Scientific Instruments (BSI) BioSpin Segment, the BSI CALID Segment, the BSI NANO Segment and the Bruker Energy & Supercon Technologies (BEST) Segment.

Revenue for the three months ended March 31, 2024, increased by $36.4 million, or 5.3%, to $721.7 million, compared to $685.3 million for the comparable period in 2023. The revenue growth was attributed to an increase of 3.8% from acquisitions, offset by a decrease of 0.1% from unfavorable foreign exchange rate movements. Excluding the unfavorable effects of foreign exchange rate movements and our recent acquisitions, our organic revenue, a non-GAAP measure, increased 1.6%. Revenue increases were driven by demand for our differentiated high-value scientific instruments and life science solutions compared to the same period in 2023.

Our gross profit margin decreased to 48.9% during the three months ended March 31, 2024, as compared to 52.5% in the same period in 2023, as a result of product mix, acquisitions and unfavorable foreign exchange rate movements.

Our income tax provision in the three months ended March 31, 2024 and 2023, was $19.8 million and $29.9 million, respectively, representing effective tax rates of 27.7% and 28.0%, respectively. The decrease in our effective tax rate was primarily due to change in jurisdictional mix, and the impact of discrete items.

Diluted earnings per share for the three months ended March 31, 2024, was $0.35, a decrease of $0.17 compared to $0.52 per share in the same period in 2023. The decrease in diluted earnings per share in the three months ended March 31, 2024, was driven by lower net income, partially offset by lower weighted average shares outstanding as compared to the three months ended March 31, 2023, due to share repurchases under our repurchase program.

The following table presents a reconciliation from net cash provided by operating activities, which is the most directly comparable GAAP operating financial measure, to free cash flow, a non-GAAP measure, as used by management (in millions):

The following table presents reconciliations from gross profit and gross profit margin, which are the most directly comparable GAAP operating performance measures, to non-GAAP gross profit and non-GAAP gross profit margin as used by management (in millions):

Our non-GAAP gross profit margin decreased in the three months ended March 31, 2024, as compared to the same period in 2023, due to transitory factors, including product mix, acquisitions and unfavorable foreign exchange rate movements.

The following table presents reconciliations from operating income and operating margin, which are the most directly comparable GAAP operating performance measures, to non-GAAP operating income and non-GAAP operating margin as used by management (in millions):

Our non-GAAP operating margin decreased in the three months ended March 31, 2024, as compared to the same period in 2023, due to the impact of the same factors impacting gross margins: product mix, acquisition and unfavorable foreign exchange rate movements. We also increased planned sales and marketing activities and investments in our research and development capabilities, as compared to 2023.

We can experience quarter-to-quarter fluctuations in our operating results as a result of various factors, some of which are outside our control, such as:

• global general economic conditions including inflation and currency volatility, and geopolitical conditions, including conflicts in Russia and Ukraine, Israel, Palestine and surrounding areas, tensions between the United States and China, and tariff and trade policy changes;
• potential energy shortages in Europe where we have significant operations and overall higher energy and transportation costs;
• the time it takes between the date customer orders and deposits are received, systems are shipped and accepted by our customers and full payment is received;
• the worldwide shortage of semiconductor chips, components and raw materials, such as copper;
• the time it takes for us to receive critical materials to manufacture our products;
• costs related to and impacts from acquisitions of technology or business;
• the time it takes for customers to construct or prepare their facilities for our products; and
• fluctuations in estimates impacting costs related to our self-funded health insurance plan.

Several of these factors have in the past affected and continue to affect the amount and timing of revenue recognized on sales of our products and receipt of related payments and will likely continue to do so in the future. Accordingly, our operating results in any particular quarter may not necessarily be an indication of any future quarter’s operating performance.

Maintaining business continuity and service levels to our customers

Ensuring our ability to supply our enabling technologies and solutions and maintaining high service levels for our customers is a top priority for Bruker. We are continuing capital investments in production facilities for efficiencies and expansion. We continue to encounter supply chain risks associated with the global economy and increasing geopolitical tensions, including inflation, banking industry volatility, the threat of recession, financial liquidity, currency volatility or devaluation, and the worldwide shortage of semiconductor chips, components, and raw materials such as copper.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

This discussion and analysis of our financial condition and results of operations is based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments, including those related to: revenue recognition; stock-based compensation expense; restructuring and other related charges; income taxes, including the recoverability of deferred tax assets; allowance for doubtful accounts; inventory reductions for excess and obsolete inventories; estimated fair values of long-lived assets used to measure the recoverability of long-lived assets; intangible assets and goodwill; expected future cash flows used to measure the recoverability of intangible assets and long-lived assets; warranty costs; derivative financial instruments; and contingent liabilities. We base our estimates and judgments on our historical experience, current market and economic conditions, industry trends, and other assumptions that we believe are reasonable and form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates and historical experience.

We believe the following critical accounting policies and estimates to be both those most important to the portrayal of our financial position and results of operations and those that require the most estimation and subjective judgment:

• Revenue recognition;
• Income taxes;
• Goodwill, other intangible assets and other long-lived assets; and
• Business combinations.

For a further discussion of our critical accounting policies, please refer to our Annual Report on Form 10-K for the year ended December 31, 2023.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2024, compared to the Three Months Ended March 31, 2023

Consolidated Results

The following table presents our results (in millions):

33

Revenue

The following table presents revenue, change in revenue and revenue growth by reportable segment (in millions):

(a) Represents product and service revenue between reportable segments.

Revenue increases were driven by growing demand for our differentiated instruments and solutions as well as pricing actions taken primarily to address inflation cost pressures. For the three months ended March 31, 2024, the BSI BioSpin Segment recorded modest revenue growth across biopharma, academic & government, and industrial research segments. The decrease in revenue in the BSI CALID Segment for the three months ended March 31, 2024, relates primarily to the timing of shipments which are expected to occur in the second quarter of 2024. Bruker Microbiology & Infection Diagnostics (BMID) revenues increased modestly for the three months ended March 31, 2024, driven by MALDI BioTyper consumables growth. The BSI NANO Segment revenue increase for the three months ended March 31, 2024, was driven by strong demand across all key markets.

Geographically in the three months ended March 31, 2024, our North American revenue grew 13.5%, Asia Pacific revenue decreased by 7.3%, and European revenue increased by 10.1% compared to the same period in 2023.

Gross Profit

Gross profit and gross profit margin decreased in the three months ended March 31, 2024, as compared to the same period in 2023, a result of product mix, acquisitions, and unfavorable foreign exchange rate movements.

Selling, General and Administrative

Our selling, general and administrative expenses for the three months ended March 31, 2024, increased to 27.1% of total revenue, from 23.7% of total revenue for the comparable period in 2023. The increase as a percentage of revenue was a result of inflation and increased planned investments in sales and marketing compared to the same period in 2023. Primary investments are related to additional headcount and personnel expenses as well as increased consulting and professional fees related to, tax, audit and audit-related fees.

Research and Development

Our research and development expenses for the three months ended March 31, 2024 increased to 11.3% of total revenue from 10.1% of total revenue for the comparable period in 2023. The increase as a percentage of revenue is a result of our increased investment in research and development capabilities, especially in our key Project Accelerate 2.0 initiatives. Investments are primarily related to additional headcount and personnel expenses as well as increased consulting and professional fees related to research and development activities.

Other Charges, Net

Other charges, net for the three months ended March 31, 2024, consisted of $4.1 million of acquisition-related charges, $0.8 million of costs associated with our global information technology (IT) transformation activities, $1.2 million of long-lived asset impairment, $1.3 million of other charges and $3.5 million of restructuring costs principally related to the BCA acquisition as detailed in Note 14 Other Charges, net. Acquisition-related charges relate primarily to transaction costs on potential and consummated acquisitions, integration costs of newly acquired entities, and stock-based compensation expense related to the fair value changes of hybrid instruments. The IT transformation initiative is a multi-year project aimed at updating and integrating our global enterprise resource planning and human resource information systems.

Other charges, net for the three months ended March 31, 2023, consisted of $2.9 million of acquisition-related charges related to acquisitions primarily completed in 2023, $0.5 million of costs associated with our global IT transformation activities, $0.3 million of restructuring costs and $1.6 million of other charges. Acquisition-related charges relate primarily to the integration costs of newly acquired entities and the cost of post combination employment services in the period acquired. The IT transformation initiative is a multi-year project aimed at updating and integrating our global enterprise resource planning and human resource information systems.

Operating Income

The following table presents operating income and operating margins on revenue by reportable segment (in millions):

(a) Represents corporate costs and eliminations not allocated to the reportable segments. Unallocated costs include general and administrative expenses not directly incurred by the segments such as professional fees incurred for the quarterly reviews and annual audit of the consolidated financial statements, personnel costs of corporate accounting, finance, legal and IT resources, and other expense items.

Our operating income decreased in the three months ended March 31, 2024, as compared to the same period in 2023, due to higher selling, general and administrative expenses, research and development costs, as well as higher acquisition and restructuring costs as compared to the same period in the prior year.

Our operating income margin decreased in the three months ended March 31, 2024, as compared to the same period in 2023, due to unfavorable product mix, the impact of foreign exchange rate movements, acquisitions, and inflation offset by favorable pricing and volume leverage.

Interest and Other Income (Expense), Net

The increase in interest and other income (expense), net in the three months ended March 31, 2024, as compared to the same period in 2023 was due to higher foreign currency exchange gains of $8.9 million driven by strengthening of the U.S. dollar against other currencies. This foreign exchange gain includes an unrealized gain recognized on a forward contract taken to minimize risks from fluctuations in the Euro currency in anticipation of the closing of our acquisition of ELITechGroup in the quarter ending June 30, 2024, the purchase price of which is denominated in Euro.

Income Tax Provision

The 2024 and 2023 effective tax rates were estimated using projected annual pre-tax income on a jurisdictional basis. Expected tax benefits, including tax credits and incentives, the impact of changes to valuation allowances and the effect of jurisdictional differences in statutory tax rates were also considered in the calculation.

The effective tax rates for the three months ended March 31, 2024 and 2023, were 27.7% and 28.0%, respectively. The decrease in the Company's effective tax rate was primarily due to change in jurisdictional mix, and the impact of discrete items. The Company also recorded discrete tax impacts during the three months ended March 31, 2024.

Equity in Income of Unconsolidated Investees, net of tax

Equity in Income of Unconsolidated Investees, net of tax represents the Company’s proportional share of the earnings or losses as reported by equity-method investees.

Net Income Attributable to Noncontrolling Interests

The net income attributable to noncontrolling interests represented the minority shareholders’ proportionate share of the net income recorded by our majority-owned subsidiaries.

LIQUIDITY AND CAPITAL RESOURCES

We anticipate that our existing cash and credit facilities will be sufficient to support our operating and investing needs for at least the next twelve months. Our future cash requirements could be affected by acquisitions that we may complete, purchases of our common stock or the payment of dividends in the future. Historically, we have financed our growth and liquidity needs through cash flow generation from operations and a combination of debt financings and issuances of common stock. In the future, there are no assurances that we will continue to generate cash flow from operations or that additional financing alternatives will be available to us, if required, or, if available, will be obtained on terms favorable to us.

Cash, cash equivalents at March 31, 2024 and December 31, 2023 totaled $340.1 million and $488.3 million, respectively, of which $300.9 million and $398.4 million, respectively, related to cash and cash equivalents held outside of the United States in our foreign subsidiaries, most significantly in the Netherlands, Switzerland, and China.

The following table presents our cash flows from operating activities, investing activities and financing activities for the periods presented (in millions):

Net cash provided by operating activities during the three months ended March 31, 2024, resulted primarily from net income adjusted for non-cash items of $85.2 million, partially offset by a change in operating assets and liabilities, net of acquisitions and divestitures of $63.4 million. The decrease in net income adjusted for non-cash items was due to lower net income. The increase in the change in operating assets and liabilities, net of acquisitions and divestitures was primarily due to higher working capital requirements for newly acquired businesses, strategic inventory management to handle supply chain challenges, timing of shipments which are expected to occur in the second quarter of 2024, increase in tax payments, and payables offset by modestly higher collections of receivables due to increased revenues at the end of the period.

Net cash used in investing activities during the three months ended March 31, 2024, resulted primarily from acquisitions of $274.5 million, purchases of property, plant and equipment of $21.4 million, and minority investments of $10.0 million, offset by $1.2 million of net proceeds from cross-currency swap agreements and $0.5 million of net proceeds from sales of property, plant and equipment. Net cash used in investing activities during the three months ended March 31, 2023, resulted primarily from acquisitions of $88.1 million, purchases of property, plant and equipment of $25.0 million, and minority investments of $8.2 million, offset by $10.7 million of net proceeds from sale of property, plant and equipment.

Net cash provided by financing activities during the three months ended March 31, 2024, was primarily from cash received from the revolving line of credit $268.9, offset by cash paid for repayment of the 2012 Note Purchase Agreement $100.0 million, repayment of long term debt $3.4 million, and for the payment of dividends $7.3 million. Net cash used in financing activities during the three months ended March 31, 2023, was primarily from cash paid for purchases of common stock under our repurchase program of $22.4 million, and $7.4 million for the payment of dividends.

Share Repurchase Program

In May 2021, our Board of Directors approved a share repurchase program (the “2021 Repurchase Program”) authorizing the purchase of up to $500.0 million of our common stock over a two-year period, in amounts, at prices, and at such times as we deem appropriate, subject to market conditions, legal requirements and other considerations. Authorization for the remaining $94.4 million on the 2021 Repurchase Program expired in May 2023.

In May 2023, our Board of Directors approved a share repurchase program (the “2023 Repurchase Program”) authorizing the purchase of up to $500.0 million of our common stock over a two-year period, in amounts, at prices, and at such times as we deem appropriate, subject to market conditions, legal requirements and other considerations. At March 31, 2024, $369.9 million remains available for future purchase under the 2023 Repurchase Program.

During the three months ended March 31, 2024, we did not purchase any shares under the 2023 Repurchase Program.

During the three months ended March 31, 2023, we purchased a total of 315,318 shares at an aggregate cost of $22.2 million under the 2021 Repurchase Program.

In August 2022, the Inflation Reduction Act (“IRA”) was signed into law in the United States. The IRA introduced new tax provisions, including a 1.0% excise tax on stock repurchases. We expect additional guidance and regulations to be issued in future periods and will continue to assess its potential impact on our business as further information becomes available. The estimated excise tax on stock repurchases is not material and is recorded in other current liabilities and additional paid in capital. No additional accrual was recorded for estimated excise tax for the three months ended March 31, 2024.

Credit Facilities

We have a total outstanding debt of $1.4 billion as of March 31, 2024, and a revolving credit facility that provides for up to $900 million of backup liquidity to finance working capital needs, refinance or reduce existing indebtedness, and for general corporate use. In addition, the facility provides for an uncommitted incremental facility whereby, under certain circumstances, we may, at our option, increase the amount of the revolving facility or incur term loans in an aggregate amount not to exceed $400 million. Outstanding borrowings as of May 10, 2024, drawn from this facility were $805 million in aggregate.

For a summary of the fair and carrying values of our outstanding debt as of March 31, 2024, and December 31, 2023, please read Note 8, Debt and Note 9, Fair Value of Financial Instruments, to our unaudited condensed consolidated financial statements included in this report. For additional information on our outstanding debt and credit facility please read, Note 12, Debt, to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023.

As of March 31, 2024, we had no off-balance sheet arrangements.

As of March 31, 2024, we were compliant with the financial covenants of these debt agreements.

RECENT ACCOUNTING PRONOUNCEMENTS

Information regarding recent accounting standard changes and developments is incorporated by reference from Part I, Item 1, Unaudited Condensed Consolidated Financial Statements, of this document and should be considered an integral part of this Item 2. See Note 2 in the Notes to the Unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for recently adopted and issued accounting standards.

We are potentially exposed to market risks associated with changes in foreign currency translation rates, interest rates and commodity prices. We selectively use financial instruments to reduce these risks. All transactions related to risk management techniques are authorized and executed pursuant to our policies and procedures. Analytical techniques used to manage and monitor foreign currency translation and interest rate risk include market valuations and sensitivity analysis.

Foreign Currency Risk

We generate a substantial portion of our revenues in international markets, principally Germany and other countries in the European Union, Switzerland and Japan, which exposes our operations to the risk of exchange rate fluctuations. The impact of currency exchange rate movements can be positive or negative in any period. Our costs related to sales in foreign currencies are largely denominated in the same respective currencies, reducing our transaction risk exposure. However, for foreign currency denominated sales in certain regions, such as Japan, where we do not incur significant costs denominated in Japanese Yen, we are more exposed to the impact of foreign currency fluctuations.

For sales not denominated in U.S. dollars, if there is an increase in the rate at which a foreign currency is exchanged for U.S. dollars, it will require more of the foreign currency to equal a specified amount of U.S. dollars than before the rate increase. In such cases, if we price our products in the foreign currency, we will receive less in U.S. dollars than we would have received before the rate increase went into effect. If we price our products in U.S. dollars and competitors price products in local currency, an increase in the relative strength of the U.S. dollar could result in our prices not being competitive in a market where business is transacted in the local currency. For example, if the U.S. dollar strengthened against the Japanese Yen, our Japanese-based competitors would have a greater pricing advantage over us.

Changes in foreign currency translation rates, compared to the comparative prior year period, decreased our revenue by 0.1% and 4.5% for the three months ended March 31, 2024 and 2023, respectively.

Assets and liabilities of our foreign subsidiaries, where the functional currency is the local currency, are translated into U.S. dollars using period-end exchange rates. Revenues and expenses of foreign subsidiaries are translated at the average exchange rates in effect during the year. Adjustments resulting from financial statement translations are included as a separate component of shareholders’ equity. For the three months ended March 31, 2024 and 2023, we recorded net gains (losses) from currency translation adjustments of $(77.2) million and $25.8 million, respectively. Amounts reported in interest and other income (expense), net, for the three months ended March 31, 2023, include a cumulative currency translation adjustment loss of $2.7 million recognized from substantially liquidating our Russian operations. A 10% depreciation in functional currencies, relative to the U.S. Dollar, at March 31, 2024, would have resulted in a reduction of shareholders’ equity of approximately $376.3 million. Gains and losses resulting from foreign currency transactions are reported in interest and other income (expense), net in the unaudited condensed consolidated statements of income and comprehensive income.

We periodically enter into forward currency contracts in order to minimize the volatility that fluctuations in currency translation have on our monetary transactions. Under these arrangements, we typically agree to purchase a fixed amount of a foreign currency in exchange for a fixed amount of U.S. dollars or other currencies on specified dates with maturities of less than 12 months, with some agreements extending to longer periods. These transactions do not qualify for hedge accounting and, accordingly, the instrument is recorded at fair value with the corresponding gains and losses recorded in the unaudited condensed consolidated statements of income and comprehensive income. In anticipation of the closing of our acquisition of ELITechGroup in the quarter ending June 31, 2024, the purchase price of which is denominated in Euro, and to minimize risks in fluctuations of the Euro, the Company entered into a forward contract to buy Euro and sell Swiss Francs. As of March 31, 2024, we recorded an unrealized foreign exchange gain of $11.1 million in interest and other income ( expense), net, related to this forward contract.

As of March 31, 2024, we had several cross-currency and interest rate swap agreements with a notional value of $137.3 million of U.S. dollar to Swiss Franc and a notional value of $137.3 million of U.S. dollar to Euro to hedge the variability in the movement of foreign currency exchange rates on portions of our Euro and Swiss Franc denominated net asset investments. Under the GAAP hedge accounting guidance, changes in fair value of the derivative that relates to changes in the foreign currency spot rate are recorded in the currency translation adjustment in comprehensive (loss) income and remain in accumulated comprehensive (loss) income in shareholders’ equity until the sale or substantial liquidation of the foreign operation. For the three months ended March 31, 2024 and 2023, we recorded net gains (losses) from the changes in fair value of the derivatives of $11.6 million and $(4.6) million, respectively.

We will apply hedge accounting for our additional Swiss Franc denominated borrowings drawn down in April 2024 under our debt agreements, proceeds of which were used to fund our acquisitions.

For the three months ended March 31, 2024 and 2023, we recorded net gains (losses) from the changes in fair value, net of tax, of the 2021 Note Purchase Agreement and the 2019 Note Purchase Agreement of $50.5 million and $(6.1) million, respectively.

From time to time, we have entered into forward exchange contracts designed to minimize the volatility that fluctuations in foreign currency have on our cash flows related to purchases and sales denominated in foreign currencies. Under these arrangements, we agree to purchase a fixed amount of a foreign currency in exchange for a fixed amount of U.S. dollars or other currencies on specified dates typically with maturities of less than 12 months with some agreements extending to longer periods. These transactions are recorded at fair value with the corresponding gains and losses recorded in interest and other income (expense), net in the unaudited condensed consolidated statements of income and comprehensive income. At March 31, 2024 and December 31, 2023, we had foreign exchange contracts with notional amounts aggregating $1,365.9 million and $489.5 million, respectively. We will continue to evaluate our currency risks and, in the future, may utilize foreign currency contracts more frequently.

Interest Rate Risk

We regularly invest excess cash in short-term investments that are subject to changes in interest rates. We believe that the market risk arising from holding these financial instruments is minimal because of our policy of investing in short-term financial instruments issued by highly rated financial institutions.

Our exposure related to adverse movements in interest rates is derived primarily from outstanding floating rate debt instruments that are indexed to short-term market rates. We currently have a higher level of fixed rate debt than variable rate debt, which limits the exposure to adverse movements in interest rates.

Commodity Price Risk

We are exposed to certain commodity risks associated with prices for various raw materials. The prices of copper and certain other raw materials, particularly niobium-tin, used to manufacture superconductors, have increased significantly over the last decade. Copper and niobium-tin are the main components of low temperature superconductors and continued commodity price increases for copper and niobium, as well as other raw materials, may negatively affect our profitability. Periodically, we enter into commodity forward purchase contracts to minimize the volatility that fluctuations in the price of copper have on our sales of these products. At March 31, 2024 and December 31, 2023, we had fixed price commodity contracts with notional amounts aggregating $6.3 million and $8.4 million, respectively. The fair value of the fixed price commodity contracts at March 31, 2024 and December 31, 2023 was $0.4 million and $0.3 million, respectively. As commodity contracts settle, gains (losses) as a result of changes in fair values are adjusted to the contracts with the customers through revenues. We will continue to evaluate our commodity risks and may utilize commodity forward purchase contracts more frequently in the future.

Inflation Risk

We are subject to inflationary cost pressures across global supply chain networks. Certain components, parts, or materials are experiencing significant cost pressures that have impacted or may impact our cost of operations in future periods. Further, inflation has increased our general and administrative expenses and may vary between countries in which we operate. We continue to evaluate these cost increases in relation to our new orders and may continue to see a negative impact on our financial results for a period of time.

Credit Risk

Economic conditions remain volatile and continue to be affected by inflation, high interest rates, supply chain disruptions and recent bank failures. We have cash and investments with certain banking institutions and money market funds in the United States and Europe where we have operations that have been the subject of concern regarding their financial conditions. Cash and investments held in these accounts exceed the Federal Deposit Insurance Corporation insurance limits. In the event of failure of any of the banking institutions where we maintain our cash and investments, there can be no assurance that we would be able to access uninsured funds in a timely manner or at all. We have a risk assessment process to evaluate the Company’s credit counterparties and we continue to closely monitor the developments in the financial markets and take steps to minimize potential impact to our business.

We have established disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act)) that are designed to ensure that material information relating to us, including our consolidated subsidiaries, is made known to our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer and principal accounting officer) by others within our organization. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of March 31, 2024. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of March 31, 2024.

Management concluded that the unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q fairly state, in all material respects, our financial condition, results of operations and cash flows for the periods presented in conformity with GAAP.

Changes in Internal Controls over Financial Reporting

There have been no changes in our internal control over financial reporting during the three months ended March 31, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.